1. A firm has the production function Q = L^2 + K^2. Does this firm have increasing, decreasing, or constant returns to scale? 2. Suppose that the total cost of production for Dunkin Donuts is C = 6Q^2 + 2Q + 5 . What are the formulas for the firm's average cost, marginal cost, and fixed cost? 3. Weiting allocates her income of $5.00 between the consumption of donuts and coffee. Her tastes and preferences are indicated by the indifference curves shown in the Figure below. The price of donuts is $0.50 each. Initially, the price of coffee is $1.00 per cup. Subsequently, the price of coffee falls to $0.50 per cup. The optimal consumption bundle lies on the indifference curve on the graph below when the price of coffee is $1. When the price drops to $0.50 the optimal consumption bundle lies on I^2. On the following graph, show the initial utility-maximizing position, the new utility-maximizing position, and separate the income and substitution effects. For Weiting, is coffee a normal or inferior good? 4. Clara spends $1,200 per year on entertainment and enjoys two forms of entertainment, going to the movies and going out to dinner. Movies cost $10 each and dinners cost $50 each. Suppose bundle A (60 movies, 12 dinners) and bundle B (20 movies and 20 dinners) are on the same indifference curve. Clara's indifference curves are downward-sloping, bow-shaped, do not intersect, and she prefers higher indifference curves to lower ones. a) On a graph with Movies on the x-axis and Dinners on the y-axis, draw the budget constraint, bundle A and bundle B. b) True/False: Clara prefers 40 movies and 16 dinners to bundles A and B. Explain. 5. Whole food produces cupcakes in its factory using the following production function, with labor (L ) and capital (K): Q = L^(1/2)K^(1/2) a. What is the marginal product of capital? Does the production function exhibit diminishing returns to capital (with labor held fixed)? Explain